Drug Store Cap Rates Hit Another Low

Cap rates for net lease properties have been falling for quite some time, often hitting historic lows, but investors find few sectors as appealing as drug stores. And according to the most recent report from the Boulder Group, a commercial real estate services firm located in suburban Northbrook, IL, in the third quarter of this year cap rates for many top drug store brands fell again.

“Walgreens cap rates remained stable at their previously reached historic low level in the first quarter of 2014,” according to the new report. But cap rates for CVS and Rite Aid properties sank 15 bps and 35 bps, respectively, since hitting their own historic lows in the first quarter. The Walgreens rate now stands at 5.6%, with CVS at 5.75% and Rite Aid at 7.4%. 1031 exchange buyers and private investors remain the primary buyers.

“Investors are attracted to these properties partly because they are one of the few opportunities with tenants that sign leases of 20 years or more,” Randy Blankstein, president of Boulder, told GlobeSt.com. In fact, although the overall rate for Walgreens properties remained stable, rates for Walgreens properties with more than 20 years of lease remaining compressed by 20 bps to 5.3%.

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